Construction News

Civil Construction Sector Set for a Collapse

The current decline in engineering construction work throughout Australia is set to become a full-scale collapse over the next few years, leading to substantial job losses and a negative impact upon the broader economy, a new report suggests.

In its latest report, BIS Shrapnel says the dollar value of work done within the civil construction sector is slated to drop by a sharper-than-expected 13 per cent in 2014/15 and by a total of 40 per cent from its 2012/13 peak of $130.3 billion to decade lows of $79.6 billion by 2017/18.

Leading the fall will be the resources sector, which is being hammered as work on major projects wind up and weak prices for oil, coal, iron ore and similar products is challenging existing operations. The prices of such commodities are also impacting investment plans as well as the construction of new mines, downstream processing facilities and related industries such as ports.

Already, work on new coal mines and other minerals developments has dropped from previous peaks and is expected to fall further, BIS says.

In oil and gas, meanwhile, activity is expected to drop precipitously over the next three years as work on six major new plants finishes up.

BIS senior economist Rubin Jeya noted that the magnitude of the fall in overall civil construction work should not be understated.

“In 2013/14, we witnessed just the ‘first leg’ of a multi-year decline in total engineering construction activity – the first since 2000/01,” Jeya said. “We expect four more years of weakening conditions before any reprieve.”

The report comes amid growing evidence of the impact the resource slowdown is having on the economy and major firms associated with the sector.

Leading engineering services outfit Worley Parsons entered a trading halt last week, and is expected to announce major write-downs associated with oil sector operations on Monday.

Still, there are areas of opportunity. Sectors such as roads, telecommunications, passenger and freight rail, freight and subdivision infrastructure offer strong growth prospects, the report said, while the outlook for facilities management and maintenance is reasonably good.

In terms of states, opportunities will largely shift away from resource darlings such as the Gladstone Region and the Pilbara and toward Sydney, where opportunities abound on major projects such as WestConnex, the Badgerys Creek Airport, the North West Rail link and Western Sydney Light Rail.

“While there is a temptation to think so, it’s not all bad news out there and the smarter companies in this space are tracking the opportunities project by project, subsector by subsector,” BIS researcher Adrian Hart said.

“Even within sectors, there are substantial differences in the outlook by asset type. For example, falling mining investment is impacting on related railways construction through the next few years, but passenger rail and freight works are expected to rise strongly given the outlook for key projects and the need to re-invest.”